Managing Transition Across Generations

1. Managing Transition Across Generations Kishor Rathi Chairman Sudarshan Chemical Ind. Ltd. Feb. 2009

2. My Perspective • Succession in our family business • How is succession affected in the absence of a clear post-retirement plan? • How do we ensure that merit is accepted ahead of seniority? • How do we manage the challenges now?

3. Introduction to Our Family • My grandfather - J. M. Rathi (1900-1976) • Silk merchant in Pune since 1920 • Had six sons • Eldest son - L. J. Rathi (1916-2003) • Started Sudarshan Silk Mills Ltd. in 1941 • Third son - Dr. R. J. Rathi (1924-2003) • PhD from Ohio State University in Chem. Engg. • Late Dr. Rathi and Late Mr. L. J. Rathi started a small pigment mfg. factory in 1952 with Rs. 60,000 capital

4. Sudarshan • Today, Sudarshan Chemical Ind. Ltd. • Is one of the largest pigment mfg. companies in India • Sales of over Rs. 4 BN. • We have revenues of Rs. 1BN in group cos: • RIECO Ind. Ltd. • Rathi Lightnin Mixers Ltd. • Rathi Vessels Pvt. Ltd. • Prescient Color Ltd.

5. Family Culture • Male participants • All are either Chemistry or Chem. Engg graduates from USA, with many having USA MBA also • Work from bottom of the organization moving upwards only as per merit • Values: Financially conservative, Higher Education, Continuous Learning and Improvement, and Simple living

6. Experience of Succession in Family Business

7. Until 1990 • Dr. R. J. Rathi (1924-2003) was the Chairman and Managing Director • Absorbed all brothers, nephews and son (more than 13 members) in different family businesses • Kept family together and his leadership was accepted by all family members on merit basis • Family business was a: • Sibling partnership • With many documented policies • With formal, conservative, and frugal atmosphere

8. First Transition: 1991-2001 SiblingPartnership – 6brothers Separated Factions SiblingPartnership – 4familyheads

9. Transition Features • For some time: • Two Managing Directors and One Chairman • Irrespective of Seniority • Currently • Single Managing Director • Heavy Business Restructuring and Professionalization • Retirement of Senior Members from Accountable Positions

10. Experiences • Business conditions changed from 1990 onward, (we are all aware) • Some family factions with different aspirations went their own way • Businesses required competitive focus and accountability • Family became more informal and perhaps less conservative / results focused

11. Next Transition 2009 -2015? SiblingPartnership 5FamilyHeads, 4 Sons CousinConsortium/SiblingPartnership?

12. Succession Gets Affected by Lack of Clear Post Retirement Plan

13. Our Experience • We have had no problems due to: • Very good understanding between members in second generation who didn’t break-away • Policy of relinquishing duties after age of 65 • Realism by all in accepting leaders • Two MDs were decided much before transition and ratified by family members in advance – It was not a power sharing formula, merit based

14. Potential Issues • Due to emotional attachment, founders find it difficult to relinquish control • Due to lack of post-retirement plan for the retiree, members do not know how to spend time after retirement

15. How do we ensure Merit ahead of Seniority?

16. Some basic factors for meritocracy • No entry to youngsters without higher education • Culture of no special treatment to family members once inside office premises • No responsibility based role after 65 … only advisory role

17. Meritocracy Externally • Today 2 out of 3 divisions, and all shared service departments are headed by non-family members • Performance metrics are clear and are discussed openly in monthly meetings • Senior level promotions are discussed amongst senior staff and informal buy-in is generated within family as well as non-family members

18. Meritocracy Within Family • Today the most senior Rathi is NOT the Managing Director • Company interest is paramount in choosing business heads, and that is what family has done voluntarily • Senior family members have realized long-term needs and have stepped into advisory roles

19. How do you manage challenges now?

20. Next Transition 2009 -2015? SiblingPartnership 5FamilyHeads,4Sons CousinConsortium/SiblingPartnership?

21. Current Challenges • Sibling partnership perhaps will change into a cousin consortium • Age difference between various family members is large although number of members has not increased • Business is ever increasingly complex and future challenges involve: • Global Branding/Geographic Consolidation • Consolidation in the Value Chain • Growth • Absorption of Young Family Members in meaningful roles

22. Steps Taken • Acknowledged Need for Tackling Issue • Involved external guide • IIM Professor who has been associated with family for more than 5 years • Address Difficult Questions • Head-On • Transparently • Frequently (i.e. No Procrastination) • With Sensitivity to Family Members

23. Broad Framework with External Consultant • Family Council • Owners Council • Succession Planning • Family Mission & Vision • Encouraging Entrepreneurship

24. Framework For Succession BusinessPlan 10years Individual Family Members Career Aspirations Future Org. Structure Individual Family Members And Non Family Members Skills, Knowledge, Experience Performance Leaders Needed

25. Framework For Succession (contd.) Fit Assessment Succession Plan Counseling Training Needs & Education Career Plan & Job Rotation